Question

1.

Service Department Charges

In divisional income statements prepared for LeFevre Company, the Payroll Department costs are charged back to user divisions on the basis of the number of payroll distributions, and the Purchasing Department costs are charged back on the basis of the number of purchase requisitions. The Payroll Department had expenses of $43,600, and the Purchasing Department had expenses of $15,370 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:

		Residential		Commercial		Government Contract
Sales		$321,000		$426,000		$978,000
Number of employees:
	Weekly payroll (52 weeks per year)	250		70		75
	Monthly payroll	32		43		30
Number of purchase
	requisitions per year	2,200		1,600		1,500

a. Determine the total amount of payroll checks and purchase requisitions processed per year by the company and each division.

	Residential	Commercial	Government Contract	Total
Number of payroll checks:
Weekly payroll
Monthly payroll
Total
Number of purchase requisitions per year:

b. Using the activity base information in (a), determine the annual amount of payroll and purchasing costs charged back to the Residential, Commercial, and Government Contract divisions from payroll and purchasing services. If required, round your answers to two decimal places. Do not round your interim calculations, round your answers to two decimal places, if required.

Service department charge rates:
Payroll Department	$ payroll distribution
Purchasing Department	$ per requisition

	Residential	Commercial	Government Contract	Total
Service department charges:
Payroll Department	$	$	$	$
Purchasing Department
Total	$	$	$

c. Residential's service department charge is   than the other two divisions because Residential is a   user of service department services. Residential has many employees on a weekly payroll, which translates into a   number of check-issuing transactions.

2.

Return on Investment

The income from operations and the amount of invested assets in each division of Beck Industries are as follows:

	Income from Operations		Invested Assets
Retail Division	$83,600		$440,000
Commercial Division	63,000		300,000
Internet Division	165,600		720,000

a. Compute the return on investment for each division. (Round to the nearest whole number.)

Division	Percent
Retail Division	%
Commercial Division	%
Internet Division	%

b. Which division is the most profitable per dollar invested?

Answer 1

1
a.					Residential	Commercial	Government contract	Total
	Number of payroll checks:
	Weekly payroll (for the year)				13000	3640	3900	20540
					(250*52)	(70*52)	(75*52)
	Monthly payroll )for the year)				384	516	360	1260
					(32*12)	(43*12)	(30*12)
	Total				13384	4156	4260	21800
	Number of purchase requisitions per year				2200	1600	1500	5300
b.	Service department charge rates:
	Payroll department		Service department charge rates=Department expenses/Total payroll=43600/21800=$ 2 per payroll distribution
	Purchasing department		Service department charge rates=Department expenses/Total number of purchase requisitions per year=15370/5300=$ 2.9 per purchase requisition
	Cost allocation=Actual usage of allocation base by the department*Service department charge rates
					Residential	Commercial	Government contract	Total
	Service department charges:
	Payroll department				26768	8312	8520	43600
					(13384*2)	(4156*2)	(4260*2)
	Purchasing department				6380	4640	4350	15370
					(2200*2.9)	(1600*2.9)	(1500*2.9)
	Total				33148	12952	12870	58970
c.	Residential's service department charge is more than other two divisions because residential is a large user of service department services.
	Residential has many employees on a weekly payroll,which translates into a large number of check-issuing transactions
2
a.	Return on investment=Income from operations/Invested assets
					Retail	Commercial	Internet
	Income from Operations			a	83600	63000	165600
	Invested Assets			b	440000	300000	720000
	Return on investment			a/b	19.00%	21.00%	23.00%
b.	Internet division is most profitable (Higher ROI)